Solving America's High Drug Cost Problem: Prevent Drug Company Tactics that Increase Costs and Undermine Clinical Quality - Pharmaceutical ...
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Solving America’s High Drug Cost Problem:
Prevent Drug Company Tactics that Increase
Costs and Undermine Clinical Quality
By the Pharmacy Benefit Management Institute (PBMI)
Commissioned by PCMAContents
Patients & Employers Cannot Sustain Current Drug Cost Growth. . . . . . . . . 1
How Drug Prices Are Set . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Payers’ Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Clinical Utilization Management Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Formulary Management Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Ways Drug Manufacturers Are Undermining PBM Management Tools . . . . 6
Revenue-Boosting Marketing Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Cost Sharing Assistance and Coupon Programs . . . . . . . . . . . . . . . . . . . . . . . 8
“Free” Drug Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Coupon Programs Enable Higher Drug Prices . . . . . . . . . . . . . . . . . . . . . . . . 10
Revenue-Boosting Formulary Tiering Exceptions. . . . . . . . . . . . . . . . . . . . . . 10
Solutions to Address High Drug Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Policy Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Marketplace Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Policy Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Marketplace Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Integrated Case Study: Cosentyx®. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18PATIENTS & EMPLOYERS CANNOT
SUSTAIN CURRENT DRUG COST GROWTH
Prescription drug spending is projected to grow at 5.4% per year between 2021–2023 and at
5.9% between 2024–2028, faster than overall health spending, and faster than the economy
is expected to grow.1 Those responsible for bearing the burden of high drug costs — patients
and payers, including employers, health plans, labor unions, and government programs —
are well aware that drug costs have risen dramatically.
A Note on 2020 Rising drug costs add pressure to healthcare budgets
On March 11, 2020, the World Health Organization already strained by increased utilization of high-
(WHO) declared COVID-19, the disease caused by the cost specialty medications and biologics. Employers
novel coronavirus, to be a pandemic and two days and other payers are stretching to provide high-
later it was declared a national emergency in the value drug benefits for their employees and other
U.S. According to the Congressional Research Service health plan enrollees.6 The profitability of American
(CRS), “real GDP fell at an annualized rate of 4.8% companies is undermined by growing healthcare
in the first quarter of 2020 (compared with a 2.1% costs, which may result in less job and economic
growth rate in the fourth quarter of 2019).”2 Over 20 growth.7
million Americans lost their jobs in March and April
Pharmacy benefit managers (PBMs) helped reduce
alone, leading to an unemployment rate of 14.7%.3
prescription drug costs for more than 266 million
Due to those job loses, an estimated 10.1 million
Americans in 2020, saving the payers who contract
Amerians lost their employer-sponsored health
for their services and their covered enrollees 40
insurance.4 Despite the contraction of the economy
to 505 on their annual prescription drug costs
and the millions who lost their health insurance,
compared to what they would have spent without
drug manufacturers increased list prices by an
PBMs.8 However, while PBMs have reduced costs
average 6.8% on 857 drugs between January and
and have a return on investment for payers of $10
June 2020, and an average 3.1% on an additional 67
for every $1 spent on PBM services, 9 rising drug
drugs in July.5 Throughout the pandemic, PBMs have
prices, especially for new specialty medications, and
continued to provide affordable access to necessary
the tactics used by drug manufacturers threaten the
medications for their plan enrollees.
financial viability of health coverage.
PCMA 1Drug prices were never set to recoup research
and development (R&D) costs, 13 but to extract the
greatest amount of revenue possible from the health
care system based on the manufacturer’s internal
assessment of their products’ value.
PATIENTS’ PERSPECTIVE
While a few drug companies have pledged to limit
Consumers understand that the prices set drug price increases to single-digit increases once
by drug companies directly lead to higher a year,14 the majority of companies do not embrace
prescription prices and higher out-of-pocket this pricing philosophy.15 Moreover, even single-
costs. A national survey conducted by North digit increases running at three or four times the
Star Opinion Research found that most voters rate of inflation in the general economy can double
blame drug companies for high drug prices and prices in as little as ten years. Contrary to assertions
out-of-pocket costs.10 This undermines drug otherwise, the pharmaceutical industry devotes a
industry campaigns that blame higher costs on relatively small percentage of its funding to research
employers, unions, health plans, and the PBMs and development (R&D) efforts. One researcher
they use to negotiate discounts on prescription estimated that “Research and development is only
drugs. Key findings include:11 about 17% of total spending in most large drug
companies.”16 Companies spend roughly one-third of
Three-quarters of voters say the cost of
their revenues on marketing, and only half as much
prescription drugs is too high.
on R&D.17
By almost 3-to-1, voters blame high drug
prices for increased cost-sharing. CASE STUDY
Only 1-in-5 voters believe drug companies’ As Gilead was preparing to launch the first major
message that “rebates cause high prices.” potential cure for hepatitis C to the market, the drug,
Harvoni, was expected to carry a high price tag:
More than 4-of-5 voters with prescription $36,000 to treat each patient. However, over the two
drug coverage are satisfied with it. years leading up to the medication’s launch, Gilead
executives and advisers inched the number higher,
In a Kaiser Family Foundation (KFF) survey,
to $65,000, then $81,000, and finally to $84,000 — or
79% of respondents said that drug costs are
$1,000 a pill for the 12-week treatment — a price
unreasonable, while 80% believe that “profits
believed to be just below where they predicted
made by pharmaceutical companies” are a
payers would add significant formulary or access
major contributing factor to those high costs.12
restrictions. Rather than basing prices on their
R&D expenses — a frequently cited industry-wide
explanation — company leaders instead set prices
How Drug Prices Are Set based on existing factors in the market to maximize
revenues.18
Drug companies strategically calculate drug prices
to derive maximum profits. They gauge the degree
of competition in the market, the cost sensitivity of
target patient groups, and projected revenue goals
when formulating list prices. They also account for
the full spectrum of discounts and rebates they
expect to issue to patients, providers, government
programs, payers, and PBMs when setting prices, as
well as the costs of company marketing programs like
free drug samples designed to get people to begin
therapy.
2 Solving America’s High Drug Cost ProblemPAYERS’ SOLUTIONS
Many payers, such as employers, commercial insurers, labor unions, Medicare Part D
plans, and Mediciaid Managed Care plans outsource the management of their pharmacy
benefits to pharmacy benefit managers (PBMs), who use clinically driven prescription drug
cost-management programs designed to deliver high-quality drug benefits while targeting
unnecessary costs.19,20 PBMs provide a number of technical and administrative functions
necessary for managing the drug benefit such as developing drug formularies, creating and
managing pharmacy networks, and processing and paying claims. These PBM tools are most
commonly used in private insurance plans, while some of them are also used in public programs.
PBMs are critical to the delivery of quality, cost- Clinical Utilization Management
effective healthcare. PBMs have long been Programs
recognized for their ability to create savings through To ensure that patients and payers receive value
negotiating rebates with drug manufacturers and from specialty and other high-cost drugs, PBMs work
discounts with retail pharmacies, offering more with pharmacy and therapeutics (P&T) committees23
affordable choices of where patients can obtain their and specialty pharmacies to create programs that
medications (e.g., pharmacy networks), providing provide prescribers and patients with evidence-based
clinical utilization management programs, and care, efficient medication delivery, clinical outcomes
encouraging the use of generics and affordable monitoring, and reduced costs.
brands.21
PBM clinical utilization management program tools
Two key functions of PBMs are essential to have been used over the last two decades to control
sustainable drug costs for employers and other traditional and specialty drug trend and assure safe
payers: clinical utilization management and formulary and efficient medication utilization. These tools
management programs. Together, these programs include drug utilization review, prior authorization,
ensure patient access to clinically appropriate step therapy, pharmacy network design, and site of
medications while managing utilization to reduce care management programs. Innovative strategies
wasteful spending.22 such as medical claims referencing and the use of
genomic and other advanced molecular diagnostics
are also enabling PBMs to facilitate targeted and
cost-effective drug therapies for patients.24
PCMA 3UTILIZATION MANAGEMENT PROGRAMS: STEP THERAPY AND PRIOR AUTHORIZATION
Prescription drug utilization management programs such as step therapy and prior authorization are
important clinical tools to help ensure that patients receive medication that is safe and effective for
their condition, helps limit off-label use of medications, promotes adherence to guidelines when they
are available, and reduce costs.25, 26, 27 In a review of available literature, the Government Accountability
Office (GAO) found that utilization management tools were associated with improved health indicators
and financial savings.28
Prior authorization is an administrative requirement that a physician must obtain from the insurer when
prescribing certain drugs to ensure that the cost will be reimbursed. Prior authorization may require
documentation, as recognized in the peer-reviewed literature that the patient has the FDA-approved
indication and possibly, meets narrower requirements.
Often used in conjunction with prior authorization, step therapy is used to control costs and improve
patient safety by requiring them to try one or more first-line therapies for a given condition (i.e., “steps”),
and only move to a higher-line therapeutic alternative if the patient does not respond or experiences
side effects.29
Formulary Management Programs work independently of PBM trade teams and indicate
whether each medication under review “must be,”
A formulary is a continually updated list of
“must not be,” or “may be” added to a PBM or payer’s
prescription drugs approved for reimbursement by
formulary.33 Typically, P&T committees consider only
the PBM’s payer clients . PBMs typically develop a
clinical factors and few consider cost, which the PBM
basic formulary and recommend it to payers, who
considers after clinical criteria are addressed.34 While
may customize it.30 The purpose of drug formularies
PBMs automatically accept committees’ “must” or
is to encourage the use of safe, effective, and the
“must not” recommendations, PBMs use competition
most affordable medications. Drug formularies
in the “may be included” third category to negotiate
are not static. Rather, they are developed and
greater price concessions from drug companies.
continually reviewed and updated by a team of
healthcare specialists, a P&T committee, and then by P&T committees serve very important medication
the PBM itself based on three primary components: safety functions such as a review process for new
clinical, financial, and other criteria such as price drugs that uncover any safety concerns with the drug
concessions.31 The first and most important and reviews of the literature for potential safety or
component is clinical safety and efficacy, and efficacy issues with existing drugs. These reviews are
choosing drugs with evidence of highest comparative critical. One recent study found that 32% of novel
effectiveness, which the P&T committee handles.32 drugs approved by the FDA had safety risks only
discovered after the drug was approved and on the
PBMs rely on P&T committees, typically made up
market.35
of independent physicians, pharmacists, and other
health care clinicians from multiple key disciplines, Drug formularies are an important tool used by PBMs
to help create formularies that include the most and payers not just to manage specialty and other
clinically sound prescription drugs. P&T committees high-cost drugs, but also to give patients financial
4 Solving America’s High Drug Cost Problemincentives to use generic drugs when possible. It is clinical efficacy or value are not given preference on
ultimately up to payer clients to decide based on formularies. Typically, in categories with multiple
the needs of their enrollee populations, the exact clinically equivalent therapies, PBMs recommend
formulary that will be used in conjunction with their that drugs with the lowest net cost (final cost after
benefit plans, as well as the specific techniques that all discounts and rebates) be placed on a formulary
will be applied to encourage formulary compliance. tier with lower cost-sharing than those with a higher
The most effective tool for achieving formulary net cost. PBM-recommended tiered formularies,
compliance is a benefit structure or plan design combined with payer-determined tiered cost-sharing,
where preferred drugs have lower enrollee cost- have resulted in 90% of prescriptions being filled with
sharing.36 Drugs that do not provide sufficient generics.37
FORMULARY EXCLUSIONS: Formulary exclusions lead to significant cost-savings and aid payers
in developing and managing drug benefit designs. A recent national survey of employers found that
more than half believe that formulary exclusions are an effective way to manage specialty trend. 54% of
employers currently use formulary exclusions for specialty drugs, with 38% planning to add or increase
the use of them in the next one to two years.38 The availability of competing products on the market
makes it easier for PBMs to negotiate with drug companies for deeper price concessions on behalf of
payer clients.39
PBMs exist to bring drug prices down to provide affordable access for the drugs patients need
at the lowest net cost for payers. Without PBMs in the marketplace, payers would be left to
negotiate prices on their own or pay the full costs of these drugs.
PCMA 5WAYS DRUG MANUFACTURERS ARE
UNDERMINING PBM MANAGEMENT TOOLS
Threatened by the wide use of PBM tools that shield patients from unnecessary medications
and high drug costs, drug companies are increasingly relying on revenue-boosting marketing
practices to protect their market share and profit margins. These practices, including
coupons and “free” drug programs,40 entice patients to use higher-cost medications when
more cost-effective, clinically appropriate alternatives exist. Many of these programs are
portrayed as charitable efforts to help patients pay for expensive medication, but in reality,
they are usually profit-driven marketing tactics.
Ultimately, these types of programs undermine efforts to encourage patients to take the highest-value products
and drive up health care costs for everyone.
CASE STUDY
When Novartis launched Gleevec in 2001 for the lower out-of-pocket costs for patients with private
treatment of chronic myeloid leukemia, the drug was insurance coverage.44 Over ten years, the company
priced at $2,200 a month.41 After two competing drugs additionally donated $389 million45 to programs
entered the market, Gleevec’s monthly price nearly that lowered patient copay levels and discouraged
doubled in 2008 to $4,063. In the years leading up to patients from switching to competing products once
Gleevec’s loss of patent protection, the drug’s price generic alternatives entered the market.
increased from $6,841 to $8,156 per month, a 19%
Even though patients covered by private insurance
price increase between 2013 and 2014.42 As Gleevec’s
who enrolled in these programs were temporarily
price climbed, so did the burden on government
protected from drug price increases, payers were
programs and taxpayers. Medicare spent $996 million
not shielded from price hikes. While the number of
on the drug in 2014, up 158% from 2010, largely due
pills sold remained relatively flat over time, Gleevec’s
to Gleevec’s significant price hikes.43
net price increases (after rebates) drove growth
To then preserve its market share despite these in U.S. sales and propelled it to become Novartis’
rising prices, Novartis deployed “free” drug, coupon, biggest drug by revenue in 2015, the last year prior to
and cost sharing assistance programs to temporarily Gleevic’s patent expiration.46
6 Solving America’s High Drug Cost ProblemMEANS-TESTED PATIENT ASSISTANCE PROGRAMS: The financial subsidy programs that drug
companies rely on to increase product uptake among insured patients differ from means-tested patient
assistance programs. Whereas means-tested patient assistance programs provide medications at
reduced costs for low-income and uninsured patients, manufacturer-created copay assistance and “free”
drug programs target patients who are already covered by insurance. By promoting drugs with sub-
optimal formulary placement, these programs aim to make patients insensitive to cost and undermine
payer and PBM efforts to encourage the use of the most cost-effective, clinically appropriate drugs.
Revenue-Boosting Marketing Programs
With clear exceptions for medical necessity, payers Simultaneously, manufacturers link patients with
typically only cover drugs that are first validated manufacturer-run “hubs,” which work through any
by P&T committees, based upon clinical and cost- utilization management programs the patient might
effectiveness measures. A growing number of face to try to get the payer to cover the drug.
pharmaceutical companies have turned to using
Unless the pharmaceutical company-run hub
coupons and “free” drug programs to increase the
succeeds in convincing the payer to cover the cost
market penetration of drugs that have not received a
of the non-formulary drug based on the grounds
favorable formulary placement.
that the patient already started treatment — and
Bypassing PBM formulary and utilization some public programs require coverage of drugs for
management processes, pharmaceutical a month or more after the patient starts a drug —
companies provide limited quantities of high-cost the patient will eventually become responsible for
drugs to patients at minimal, if any, initial cost. covering the cost of the drug out of pocket.
Marketing Programs that Bypass Clinically Driven Prescription Processes
TRADITIONAL PROCESS MARKETING PROGRAM PROCESS
1. Payer and PBMs add drugs to a formulary 1. Drug company informs doctors of “free” drug or coupon program
after P&T committees review drugs and
recommend appropriate drugs 2. The doctor prescribes the patient the medication and refers the
patient to a drug company-owned hub processing center
2. The provider prescribes a patient a high-
cost specialty medication 3. Drug company hub enrolls the patient in the temporary marketing
program and provides the patient with a limited quantity of the
3. Prescription is sent to a specialty pharmacy high-cost drug at no cost
4. The PBM conducts a PA or step-therapy 4. Drug company hub informs the patient’s insurance company that
review based on clinical criteria, if the patient has started using the non-formulary drug
applicable to the drug, before the
medication is approved 5. Drug company hub requests that the drug be covered by the
insurance company
a. If approved, the patient receives
the medication through a specialty a. Under some public programs, payers must cover drugs the
pharmacy patient is currently taking, or there is a transition period.
b. If not approved, the pharmacy works b. If the payer otherwise does not approve coverage, the patient
with the physician to choose a more must switch drugs or pay the entire cost of the drug out of
appropriate option pocket.
PCMA 7Coupon and “free” drug programs bypass the These drug company programs and tactics result in
clinically driven formulary processes and step increased costs for payers and patients. While payers
therapy tools that PBMs use to safeguard utilization bear the initial burden of these unnecessarily high
management. Drug companies use these programs drug costs, patients soon face high monthly out-of-
to drive increased utilization of drugs that are pocket costs when these time-limited programs are
potentiall higher-cost or less well-understood instead phased out.47 And to the extent that the patient’s
of more clinically appropriate, cost-effective options. stabilization on the drug then obligates the payer to
When payers are not involved in this process, they cover the drug at least for a transition period, the
become obligated to address patients’ treatment payer’s costs rise as well. Payers eventually share
options after patients have already begun taking a the burden of these costs with all plan enrollees
potentially substandard drug. through increased insurance premiums, copays, and
coinsurance costs.
TACTICS PROHIBITED IN GOVERNMENT PROGRAMS
Considered illegal in federal programs due to anti-kickback laws, these tactics have long been under
scrutiny by the Health and Human Services Office of Inspector General.48 Formulary circumvention
programs such as “free” drug and copay coupon programs are viewed as kickbacks as they improperly
steer patients to a particular company’s drug instead of less expensive, appropriate alternatives, and
encourage wasteful spending for the profit of an outside third party. One recent study estimated
that relaxing the ban on manufacturer coupons in Medicare Part D would increase costs by $48
billion between 2021-2030.49 However, drug manufacturers attempt to get around anti-kickback
laws by donating money to charities, some of which may engage in illegal practices, that help
Medicare beneficiaries pay for expensive brand name drugs. The U.S. Department of Justice has been
investigating these relationships between charities and drug manufacturers as potential illegal kickback
schemes, including over a dozen legal actions resulting in settlements worth millions of dollars.
While not allowed within the benefit for Medicare and Medicaid,50 these tactics and programs are still
widely used in the commercial market and permitted in ACA Exchange-based coverage.
Cost Sharing Assistance and
Coupon Programs
Common consumer-product brands often rely on patients soon realize additional costs and burdens.
coupon promotions instead of price reductions to Upon exhaustion of the coupons, patients become
lure consumers away from lower-cost competitors. responsible for paying the full costs of treatment.
Drug companies have adopted this technique and
similarly use coupons to increase sales of their Drug company coupon programs are most often
products. However, unlike promotions for everyday available for branded drugs that have lower-cost
products like detergent and paper towels, these alternatives available on the market51 and will likely
not qualify for favorable formulary placement. By
programs lead patients to start potentially life-
definition, coupon and copay promotions only target
long therapies on specialty and high-cost drugs.
patients who have prescription drug coverage (i.e.,
But because coupon programs for these high-
those who pay cost-sharing). Considered illegal
maintenance drugs are often only temporary,
8 Solving America’s High Drug Cost ProblemThe use of copay coupons reduces the utilization of more affordable medication options, and
overall prescription drug costs are continuing to rise dramatically.
in federal health programs, copay coupons are or other copay assistance amount as if the patient
banned in Medicare and Medicaid, but allowed in the had paid it with their own money. Patient advocacy
commercial market (except in Massachusetts and groups and pharmaceutical manufacturers have
California, where they are allowed only for brand pushed back against copay accumulators, arguing
drugs with no generics).52 that coupons are essential to patients getting access
to the drug they need.57 State legislators in Arizona,
Coupon programs have been highly effective and Illinois, Virginia, and West Virginia have recently
lucrative for drug companies. In 2009, coupons enacted laws restricting accumulator programs.58
were available for fewer than 100 prescription These reform measures could undermine PBM
medications. By 2015, the number exceeded 700 programs that try to combat the negative effect that
such programs.53 Drug manufacturers may earn coupon programs have on payer drug costs. For plan
between a 4:1 and 6:1 return on investment on copay year 2021, CMS’ Center for Consumer Information
coupon programs.54 Because insured patients are and Insurance Oversight (CCIIO) has indicated that
only exposed to copayment or coinsurance out-of- insurers are not required to apply the value of
pocket costs, cost sharing assistance programs that manufacturer coupons to deductible and annual
temporarily lower or eliminate patient cost-sharing MOOP limits, in alignment with IRS guidance.59
lure patients to choose expensive drugs over more
affordable and often more clinically appropriate,
options. When patients use these programs, payers “Free” Drug Programs
are left to pay for the full amount of the drug minus
Payers and PBMs use drug utilization management
the patient cost-share.55 Overall, approximately
tools, such as prior authorization and step therapy,
two-thirds of prescription drug costs are paid not by
to encourage the use of lower-cost, often safer
patients, but instead by the employers, unions, and
medications before progressing patients to higher-
other payers that provide health coverage.56
cost drugs. To evade these tools, drug companies use
Copay assistance and coupon programs undermine “free” drug programs to provide initial medication
payers’ ability to use varying copay amounts to doses free of charge to patients before their
incent patients to take the most cost-effective insurance companies can approve the medication or
drugs. Payer costs rise dramatically when enrollees determine that other medication options are more
choose expensive drugs over more affordable, appropriate.
clinically appropriate options. The use of copay
These programs, also known as Bridge and
coupons reduces the utilization of more affordable
QuickStart Programs, entice insured patients to
medication options, and overall prescription drug
start specialty drug therapies at no cost out of
costs are continuing to rise dramatically.
pocket, regardless of their plan’s formulary design.
To counteract the impact of coupon programs, These programs give patients the illusion of lower
many plan sponsors have implemented “copay prescription costs, but ultimately leave patients and
accumulator” programs. Copay accumulator payers responsible for the full cost of the drug once
programs only count actual patient out of pocket the program ends. These costs are ultimately borne
costs toward deductible and maximum out of pocket by all plan enrollees.
(MOOP) limit amounts versus counting the coupon
PCMA 9Drug companies work directly with health care In looking at nine brand name drugs with the highest
providers to enroll patients in these programs. sales revenue, the independent nonprofit research
As with copay coupon programs, drug companies institute Institute for Clinical and Economic Review
require patients to submit confidential, personal (ICER) found that “The total increase in spending in
information about their health status, disease state, the US over two years due to price increases for the
previous medications, and insurance coverage. This seven drugs found to have [clinically] unsupported
information, otherwise difficult to obtain due to its price increases amounted to $5.1 billion.”64 As a
sensitive nature, enables manufacturers to act as the result, national drug expenditures continue to grow
patient’s agent and appeal to have the drug covered quickly due to these ongoing drug price increases.65
by the formulary through the insurance companies
Coupon and “free” drug programs enable drug
on the patient’s behalf.
companies to introduce high-cost drugs, sometimes
“Free” drug programs are designed to circumvent with limited clinical support, to the market and
payers’ evidence-based and cost-effective specialty gain coveted market share, while undermining
benefit designs. By starting patients on high-cost step therapy and other utilization management
or specialty drugs, drug companies evade payer programs designed to start patients on a lower cost,
plan design by preventing patients from first trying established drug and only move to more expensive
less expensive and potentially more effective drug medications when clinically necessary.
options, including generics or biosimilars. Once
patients begin using these expensive drugs at no
initial or low cost charge, drug companies capitalize Revenue-Boosting Formulary Tiering
on the opportunity to initiate prior authorization Exceptions
and drug coverage appeals processes with patients’ Manufacturers also exploit requirements in Medicare
insurance companies, which may be required Part D that allow beneficiaries to request a tier
by state law or federal regulations to approve exception for a drug they are taking, based on need.
coverage for patients stabilized on a drug. Medicare has allowed beneficiaries needing a drug
on a tier with higher cost-sharing to request an
exception, and if the exception is granted, the plan
Coupon Programs Enable Higher must charge the beneficiary cost-sharing as if the
Drug Prices drug had been placed on the lowest tier, which is
New brand drugs introduced to the market routinely typically reserved for generics. These exceptions,
enter with higher prices than existing medications. however, do not apply to drugs on a specialty tier.
Manufacturers of existing medications often react
Pharmaceutical manufacturers with very expensive
by increasing their own prices. This leads to higher
drugs that Part D plans have placed in formulary tiers
prices across all existing drugs in the therapeutic
with higher cost-sharing can encourage and indeed
class, even though no further clinical value is
help beneficiaries to request tier exceptions for
added.60 Incremental drug price increases for existing
lower cost-sharing, evading formulary incentives to
products on the market have become a defining
use more cost-effective, clinically sound alternatives.
feature of drug company tactics.61,62 Overall, list
The ability to challenge formulary placement, aided
prices for brand-name medications sold in the U.S.
by manufacturer-sponsored hubs, is an ongoing
climbed more than 14% in 2015, with no change in
concern for payers.
clinical efficacy for patients or in market demand.63
10 Solving America’s High Drug Cost ProblemSOLUTIONS TO ADDRESS HIGH DRUG COSTS
During a time when drug companies are increasingly implementing coupons and “free” drug
programs, payers face the challenge of providing valuable drug benefits that optimize clinical
care while managing costs. Payers must especially manage the two to five% of patients who
use specialty drugs since this minority of patients represents a growing, disproportionate
share of overall drug and medical costs.66
As PBMs develop clinical criteria to ensure the right While pre-approval conversations are neither
drug and right dose for each patient, their clinical explicitly covered nor prohibited by existing
expertise allows them to create strategies that help legislation or regulations, the ongoing concerns
physicians and patients select the optimal drug, about FDA’s interpretation have had a chilling effect
ensuring that formularies are based on scientific on the industry and create a compelling need for
evidence, not marketing tactics. clarification.67
Several public policies and marketplace practices Guidance from the FDA will allow for improved
can help further address high drug costs. The key communications between drug companies and
for policymakers is to avoid policies that impede payers about the real-world impacts and economic
effective market-based competition and tools PBMs consequences of new drugs.68 Once PBMs have
and payers use to drive that competition. access to information regarding anticipated drug
indications and pricing, they can translate it earlier
into recommending plan designs that will provide
Policy Solutions appropriate access and increase affordability for
Clarify pre-launch conversations. The FDA patients and payers.
Modernization Act (FDAMA) of 1997, Section 114,
Increase market competition. When limited
created a regulatory safe harbor for drug companies
competition is present in the market, drug companies
to share health care economic information (HCEI)
can generally set and maintain high drug prices. By
with a formulary committee or other similar
speeding the approval of more next-in-class brand
entity. However, since the U.S. Food and Drug
drugs, generic drugs, and biosimilars, the FDA can
Administration (FDA) has never provided guidance
facilitate competition, allowing PBMs to drive larger
on how to interpret or implement the statute,
rebates and discounts that help offset higher drug
the distribution of HCEI is currently underutilized.
spending trends.
PCMA 11Payers and PBMs are increasingly concerned about bundled payments, growth of accountable care
manufacturers astronomically increasing prices for models, evidence-based medicine, and payments
off-patent drugs that are not subject to competition. linked to performance. These trends require PBMs
After the enactment of the prescription drug user fee and drug companies to rely on rigorous comparative
acts in 2017,69 the FDA announced it would compile effectiveness and cost-effectiveness research
a list of all drugs for which market exclusivity has to create innovative approaches to measuring
expired with no generic or other brand substitute outcomes and assessing value.
products available on the market.70 Maintaining
Encourage value- and indication-based contracts.
this drug and concomitant indication indexing
Value-based contracts are designed to assess the
allows stakeholders to understand the depth of the
performance of drugs in real-world situations,
problem better and identify which therapeutic areas
with the goal of obtaining better value, improved
are at risk for uncontested pricing models. Per the
clinical outcomes, and lower costs. PBMs have led
revised statute, the FDA also promotes competition
the industry in creating contracts that account for
for such drugs by providing an accelerated review
the value of specialty and high-cost medications.
of abbreviated new drug applications (ANDAs) for
Discussions around certain government policies, such
competing products, or providing other forms of
as Medicaid Best Price, are aimed at improving PBMs’
regulatory flexibility to allow for more creative
ability to implement creative contracting options.
market solutions.
Payers prefer to provide patients with drugs that
Comparative effectiveness and cost-effectiveness.
have proven outcomes and high-value propositions,
To best assess the efficacy and value that new
so some companies are beginning to introduce
medications provide, P&T committees need more
products with outcome-based pricing measures
comparative effectiveness studies. Currently, cost-
instead of volume-based prices.71 One high-profile
effectiveness research is typically only conducted
example of this has been the gene therapy drug
on a small scale by research organizations, payers,
Zolgensma. The drug manufacturer, Novartis, worked
and government entities, and results are not always
with payers to develop an outcomes-based payment
publicly accessible. Determining the true value of
over time framework, which was announced
drugs requires rigorous, timely evidence that is
alongside the drug’s FDA approval; however, the
applicable to large populations.
payments are still required even if the therapy fails.
One area that would particularly benefit from this
Expand tools that allow plans in Medicare to
approach is specialty drugs. There is currently no
negotiate price concessions on every brand drug.
uniform approach in the U.S. to measuring the value
Congress should reinforce price competition among
of or defining specialty drugs. An evidence base
brand drug manufacturers in Medicare by removing
that standardizes the study of specialty drugs and
the mandate that “all or substantially all” drugs in
clearly demonstrates the cost and effectiveness of
treatment options for a variety of conditions would Part D’s six classes of clinical concern (the so-called
foster a health system that rewards providers and protected classes) be covered. When drug companies
pharmaceutical companies for quality and value are guaranteed drug coverage, they have no incentive
rather than purely cost and volume. Comparative to offer price concessions to payers. A recent
effectiveness research will improve clinical decision- independent study from Emory University published
making, enhance the quality of care, and discourage in the journal Health Economics, found that protected
wasteful spending. class status led to at least $112—121 million per drug
per year in higher U.S. sales for drugs in protected
PBMs have long been at the forefront of efforts to classes relative to unprotected drugs. The increased
bring more measurement, accountability, and real- costs were driven by both higher prices and higher
time information to the health care system. Efforts utilization.72 The author concluded that the “findings
to reduce health costs without compromising clinical suggest that the protected class policy is quite
safety and quality have led to the development of
12 Solving America’s High Drug Cost Problemcostly to the Medicare program and consumers. equivalent medications, and patients are left to pay
By mandating that all approved drugs be covered more out-of-pocket costs for the drug. This results in
in these classes, the policy creates a wedge in the higher premiums or copays to compensate for the
competitive negotiations between two parties.” higher costs incurred by payers for specialty drugs,
MedPAC has also recommended withdrawing two offering a coupon.74
classes — antidepressants and immunosuppressants
Since cost-sharing kickback schemes increase drug
— from protection. By statute, the Secretary of
costs by undermining the formularies used by
HHS has the discretion to designate a class as a
payers, they should be limited only to means-tested
so-called protected class, as well as to withdraw
programs to help low-income and uninsured patients
such designation. Absent congressional action,
and to drugs without cost-effective alternatives.
the Secretary should use this authority to remove
protected class designations as appropriate or allow Expand formulary exclusions. To counter
for the use of more PBM tools within the protected manufacturer efforts to undermine formularies by
classes. subsidizing patient cost-sharing for expensive drugs
typically covered on a higher cost-sharing tier, PBMs
Reduce market exclusivity periods. Reducing the
are beginning to exclude more drugs from their
current period of exclusivity granted to innovator
formularies. Exclusion lists contain drugs that offer
drugs can help stimulate more competition from
biosimilars. Patients, employers, and taxpayers no additional benefit over alternative treatments in
would save hundreds of billions in health spending the same therapeutic class; however, excluded drugs
can still be covered through an appeals process. This
if expensive biotech drugs faced the same generic
competition as traditional brand-name drugs. The can result in significant savings while still providing
clinically appropriate access to drugs. For example,
current 12 years of data exclusivity for biologics
CVS Health found that patients whose plans used a
prohibits approval of 351(k) applications for
selective formulary with restricted coverage of drugs
biosimilars from being approved by the FDA for
saved almost $35 on each prescription; the overall
12 years after the date of the first licensure of the
reference product. This ensures market exclusivity approach has saved clients $6 billion since 2012.75
for the manufacturer of the reference product for In addition, Prime Therapeutics, in assessing the
12 years, although in practice, it is usually much impact of moving from an open formulary to one
longer especially with tactics used to push for with exclusions, found substantial pharmacy savings
longer exclusivity periods.73 The result to payers occurred with no associated increase in healthcare
services utilization or drug therapy discontinuation.76
and patients is that drug manufacturers of brand
biologics often have monopoly pricing power. Adjust cost-sharing tiers. As part of the formulary
development process, payers place drugs into
different patient cost-sharing tiers. Drugs in lower
Marketplace Solutions tiers will generally cost less or provide better value
Realign copay coupon use. If used with a than clinically equivalent drugs in higher tiers.
commercial health plan’s approval as an adjunct
to formulary and plan design, copay coupons can Manufacturers sometimes encourage patients
support adherence while not adding unnecessary to override traditional utilization management
costs to patients and the health care system. rules without clinical reason by using coupons or
Coupons and other patient assistance programs can “free” drug programs. In response, payers should
be used in line with tools such as formularies and be allowed to maintain incentives to use more
clinical guidelines, to ensure clinically appropriate appropriate, lower-cost drug options by preserving
drug use and increase patient adherence. the cost-sharing differential between preferred
and nonpreferred drugs when coupons for “non-
Once coupons expire (generally after three months preferred products” are used.
to a year, or a maximum dollar benefit), payers find it
difficult to transition patients to lower-cost, clinically
PCMA 13Support evidence-based value assessment While manufacturers have funded organizations
models. Patients, providers, employers, payers, and to discredit ICER’s work and undermine its use as a
taxpayers rightfully expect drug costs to correlate resource for payers, it is critically important that both
with the actual value being delivered. Without insight state and federal policymakers not join in efforts
from organizations like the Institute for Clinical and to keep payers from using ICER’s and other group’s
Economic Review (ICER), it is not always possible to value assessment models.
ensure that the value of new drugs is commensurate
Empower patients. Patients play an important role
with the prices being charged.
in pharmacy decision-making and should be provided
ICER’s mission is to help provide an independent with information from payers and drug companies
source of analysis of the evidence on effectiveness that help them make the best decisions for their
and value to improve the quality of care that patients health care. Health plans that leverage strategies
receive, while also supporting a broader dialogue on such as real-time benefit tools and other forms of
value in which all stakeholders can participate fully. price transparency, educational programs, formulary
Their aim is to provide what the health care system management, and cost-sharing can drive patient
has long lacked: an independent, trustworthy source engagement, maximize value, and lower costs.
of information that involves the key stakeholders on
value-focused discussions.77
SOLUTIONS AT-A-GLANCE
POLICY SOLUTIONS MARKETPLACE SOLUTIONS
Clarify pre-launch conversations. Realign copay coupon use.
Increase market competition. Expand formulary exclusions.
Comparative effectiveness and Adjust cost-sharing tiers.
cost-effectiveness.
Support evidence-based value
Encourage value- and indication- assessment models.
based contracts.
Empower patients.
Expand tools that allow plans
in Medicare to negotiate price
concessions on every brand drug.
Reduce market exclusivity periods.
14 Solving America’s High Drug Cost ProblemCONCLUSION Over the past decade, prescription drug expenditures have grown faster than any other healthcare category and represent an increasing percentage of per capita health spending. During the same period, drug companies have spent roughly one-third of their growing revenues on marketing, and only half as much on research and development.78 Since drug prices bear little relationship to R&D costs and are set to maximize the drug company’s profitability during drugs’ period of patent protection, PBMs and payers should be given a stronger hand to leverage more competition among drug companies to prevent them from needlessly escalating launch and existing therapy prices. Otherwise, patients, employers, and other payers will continue to bear unnecessary costs. Drug companies use copay assistance, “free” drugs, PBMs have proven their ability to directly lower and similar programs to support high list prices. the nation’s spending on prescription drugs while These programs are most often used when drugs are ensuring affordable access to clinically proven new to the market, do not have favorable outcomes medications for patients.79, 80 Payers rely on PBMs studies, or do not provide proportionate value to to create strategies that encourage free-market other lower-cost alternatives on the market. Since competition, lower the high costs of drugs, these programs are time-limited, patients find it and prevent wasteful spending in order not to difficult to afford these high-cost medications once overburden the health system. Policymakers should subsidies are stopped. Payers find it similarly difficult support policy and marketplace solutions that to transition patients to more clinically effective, prevent drug companies from using tactics to evade higher value alternatives once these programs end. payer formulary plan designs and add high costs to Together, these factors lead to significant concerns patients and payers across the healthcare system. surrounding medication affordability and adherence, thus further affecting the health of patients and creating additional costs to the healthcare system. PCMA 15
INTEGRATED CASE STUDY: COSENTYX®
In January 2015, the FDA approved Novartis’ Cosentyx entered the market at a price higher
Cosentyx® (secukinumab) to treat adults with than most of the existing therapeutic alternatives.
moderate-to-severe plaque psoriasis. One year later, To illustrate the differences in cost, a 30-day
Cosentyx® received approval for two new first-in-class supply of the most commonly prescribed, patient-
indications, active ankylosing spondylitis, and active administered (e.g., self-injectable, non-infused)
psoriatic arthritis.81 At the time of approval, there specialty medications used to treat plaque psoriasis,
were already five injectable biologic drugs used to ankylosing spondylitis, and psoriatic arthritis are
treat one or more of these three conditions on the shown below using prices publicly available on
market. GoodRx.com.
Pricing Comparison: Patient Administered Biologic Alternatives to Cosentyx®
Year Approved Route of Lowest Price for a
Drug by FDA Administration Manufacturer 1-month supply82
Cimzia® Subcutaneous $3,762.21
201383 UCB
(certolizumab pegol) injection (free coupon available)
Simponi® $4,195.30
2009 Syringe injection Janssen
(golimumab) (free coupon available)
Humira® $4,538.81
200584 Prefilled pens Abbvie
(adalimumab) (free coupon available)
Enbrel $4,539.59
200285 Sureclick injector Amgen
(etanercept) (free coupon available)
Cosentyx® $8,300.47
2015 Sensorready pens Novartis
(secukinumab) (free coupon available)
Stelara® $9,727.26
200986 Prefilled syringe Janssen
(ustekinumab) (free coupon available)
Taltz® $13,683.90
2016 Autoinjector Lilly
(ixekizumab) (free coupon available)
In response to Cosentyx’s® introduction, payers to have inadequate responses to two preferred
established prior authorization and step therapy biologic treatments in the previous six months. And,
requirements to encourage patients to use more UnitedHealthCare created a step therapy program,
established treatments before progressing to this requiring patients to use Stelara® and Humira®
new, higher-cost medication. At the time, Aetna before advancing to Cosentyx®.87
required patients to try at least two less costly
Novartis took a number of steps to increase
biologic medications, including Enbrel®, Humira®, and
utilization of Cosentyx®, including the creation of
Remicade® (which is infused, not self-administered),
patient hubs, patient assistance programs, copay
before starting Cosentyx®. Anthem implemented a
assistance and free drug programs, and a large
prior authorization process that required patients
16 Solving America’s High Drug Cost Problemdirect-to-consumer (DTC) campaign to encourage insured but had not been approved for coverage
people living with psoriasis to ask their doctors about yet. Commercially insured patients who are awaiting
prescribing Cosentyx®. coverage determination for Cosentyx® were given
up to seven doses (about a 3-month supply90) of the
drug at no cost. Those whose insurance did not cover
Hubs the drug had access to up to thirteen doses free
When Cosentyx® was launched, Novartis established (about an 8-month supply). Commercially insured
the Cosentyx® Connect Personal Support Program patients who obtained insurance coverage for
hub.88 The hub focused on helping patients and Cosentyx® could get up $16,000 worth of treatment
providers navigate payers’ drug coverage and with no cost-sharing.91
reimbursement support processes. In order to
initiate the process, patients were required to
approve the release of otherwise-protected personal Direct-to-Consumer Advertising
health information to Novartis, including full contact Novartis invested significant resources into the
information, insurance coverage details, disease drug’s launch to achieve peak sales. Despite the
state status, and prior treatment history. Once the drug’s relatively small patient population, to fully
process was initiated, the hub researched each drive uptake in the U.S., Novartis undertook a large
patient’s insurance benefits and prior authorization DTC advertising campaign designed to target their
requirements and acted as the patient’s agent to patient base and further grow the brand.92 Spending
submit all necessary documentation and appeals $83 million in 2015 alone on advertising Cosentyx,93
forms. Novartis tried to create demand among patients and
providers, with a goal of pushing reluctant payers to
cover the drug, even though most payers preferred
Patient Assistance Programs patients first try more cost-effective, first-line
Through the Cosentyx® hub, Novartis provided treatments.94
assistance to patients experiencing financial hardship
Thus, Novartis anticipated insurer and PBM utilization
who had no third-party insurance coverage for their
management and used programs like these to create
medicines. To qualify for this particular program,
patient demand and circumvent programs designed
patients were required not to have prescription drug
to ensure patients receive the most clinically- and
coverage (public or private) and had to meet income
cost-effective treatment and that payers are not
eligibility criteria.89
subjected to unnecessary costs.
Copay Assistance and Free Drug
Programs
In comparison to the purely needs-based patient
assistance programs, Novartis also established
copay assistance and free drug programs to gain
broader market share among patients who were
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